Investment summary

In its October trading update STB indicated that Q3 trading was strong, in line with trends reported in H118 and that it was comfortable with full-year guidance, despite economic and Brexit concerns. We expect earnings and loans to grow by 32% and 28% in 2018, respectively. Repositioning has left STB with a lower risk book, focused on areas where the risk-reward pricing is currently better. STB notes that investments it made in collections in 2017 are having a positive impact on results this year. In Q318, STB raised £50m in fixed rate callable 10-year subordinated debt at 6.75%, adding 268bp of Tier 2 capital at a reasonable price.

Last updated on 26/10/2018

Industry outlook

STB sees significant opportunities in both its repositioned motor finance and its business segments. Management appears keen to avoid being drawn into competition where the risk/reward is unattractive. Our numbers reflect this, but we still see scope for the bank to roughly double its assets and earnings between 2017 and 2020, while keeping CET1 above 10% and maintaining a generous dividend policy. Management will look at M&A opportunities (particularly in asset finance, mortgages and consumer finance) should they arise.